12/18/2016

Occupational licensing

Over the past several decades, occupational licensing laws in California – and across the country – have grown dramatically. In the 1950s about 5% of occupations were licensed nationwide. Today, roughly 25% of occupations require a state license, many for poor and middle-income professions, according to a recent White House study.

The Golden State’s occupational licensing laws are stricter than most. In fact, the Institute for Justice ranks California as “the second-most broadly and onerously licensed state.” California is one of seven states to license tree trimmers, one of 10 to license landscape workers, one of two to license still machine setters, one of two to license funeral attendants, and one of nine to license farm labor contractors. ...

On average, Californians seeking an occupational license will pay $300 in fees, lose 549 days to training requirements and have to take an exam. That’s just the average. Some of the burdens are far more cumbersome. For instance, a tree trimmer must complete 1,460 hours of training, pass two exams, and pay $851 in fees; a mobile home installer must also complete 1,460 hours, compared to the national average of 245; and a pharmacy technician must complete 730 hours in addition to meeting educational requirements, a bar that’s only as high in three other states.

This not just burdens business and impedes job formation, but it contributes substantially to California's high recidivism rate:

Whatever the state’s intentions, however, its onerous licensing laws have the effect of keeping ex-convicts out of licensed occupations. After years behind bars, they don’t have the savings needed to enroll in training programs, much less pay licensing fees. To become a licensed security alarm installer, for instance, an individual must complete 933 hours of training, which can easily cost upwards of $1,200. Many of the training programs, moreover, require a high school degree, which two in five inmates nationwide never obtained, according to a 2003 U.S. Department of Justice study.

To stay out of prison, ex-convicts need a way to provide for themselves legally. With so many barriers to employment, it’s no wonder that states with abundant licensing laws experience a higher recidivism rate.

Analysis of data from the Institute for Justice, the Pew Center on the States and the National Employment Law Project reveals that states with the most burdensome licensing laws saw an average 9% increase in recidivism from 1997 to 2007. On the other hand, the states that had the lowest licensing burdens and no provisions excluding ex-convicts saw an average decline in recidivism by nearly 2.5%.

On the other end of the law business spectrum, Gillian Hadfield muses on the way occupational licensing for lawyers raises the cost of hiring lawyers and increases the number of people who lack competent representation:

The rules that prohibit the “corporate practice of law” or any “fee-sharing” (otherwise known as profit- and revenue-sharing) with anyone who is not a lawyer–like investors or business managers or software engineers. A small-scale practice–which is where we find the lawyers who provide services to individuals and small businesses–is hugely inefficient. Lawyers don’t benefit from that inefficient scale. But clients pay for it–and mostly, can’t pay for it and so can’t access services.

That’s the irony: Lots of lawyers are actually willing to provide their legal help to the market in exchange for an average of about $35 an hour. That deal could be struck with the millions of people who need some legal help and who could pay that price (but not $200 an hour) if the rules let lawyers work for and with the non-lawyer professionals and investors who can get us to the scale and technology needed to generate large-scale access.